Early Retirement Health Insurance Strategy using Mega Back Door Roth IRA

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mathguy3021
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Joined: Sat Apr 09, 2011 9:30 pm

Early Retirement Health Insurance Strategy using Mega Back Door Roth IRA

Post by mathguy3021 » Sun Oct 14, 2018 12:01 am

I have found my own solution to early retirement health insurance costs. I am an extreme saver who has the ability to fully take advantage of the mega backdoor Roth IRA. This year I am on track to max out the 401(k), HSA, Regular Roth IRA, and Mega Backdoor Roth IRA. I am not a highly compensated employee as defined by the IRS, and my income is below $120,000. My net worth is under seven figures, and about 80% of my net worth is from these tax advantaged accounts and about 20% of my net worth is from a taxable brokerage account. By maxing out the Mega Backdoor Roth IRA every year, I will minimize my future MAGI in early retirement, and I will be able to qualify for a large federal subsidy for ACA insurance as long as I keep my MAGI at 138% of FPL income. The Mega Backdoor Roth IRA will enable me to control my early retirement MAGI as I please.

I wanted to ask the boglehead forum users what they thought about my early retirement health insurance strategy. What do you think about keeping MAGI in early retirement at the FPL income level that maximizes the federal ACA subsidy?

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FiveK
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Re: Early Retirement Health Insurance Strategy using Mega Back Door Roth IRA

Post by FiveK » Sun Oct 14, 2018 11:28 am

Whether health insurance costs continue to be determined the way they are today or not, your strategy to maximize your tax-advantaged savings should serve you well. Keep up the good work!

TravelforFun
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Re: Early Retirement Health Insurance Strategy using Mega Back Door Roth IRA

Post by TravelforFun » Sun Oct 14, 2018 11:59 am

There are tradeoffs. You pay taxes now on the money you backdoor into Roth but you'll be able to keep your MAGI low for ACA subsidies or low Medicare premium while still maintaing a reasonable lifestyle in retirement.

TravelforFun

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Earl Lemongrab
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Re: Early Retirement Health Insurance Strategy using Mega Back Door Roth IRA

Post by Earl Lemongrab » Sun Oct 14, 2018 4:06 pm

TravelforFun wrote:
Sun Oct 14, 2018 11:59 am
There are tradeoffs. You pay taxes now on the money you backdoor into Roth but you'll be able to keep your MAGI low for ACA subsidies or low Medicare premium while still maintaing a reasonable lifestyle in retirement.
There's a limit to how much you can defer, so the OP will pay tax on this money regardless. Putting it in Roth through the Mega Backdoor means never paying on the growth. Regardless of use, putting it in Roth versus taxable makes sense.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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tfb
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Re: Early Retirement Health Insurance Strategy using Mega Back Door Roth IRA

Post by tfb » Sun Oct 14, 2018 4:51 pm

mathguy3021 wrote:
Sun Oct 14, 2018 12:01 am
By maxing out the Mega Backdoor Roth IRA every year, I will minimize my future MAGI in early retirement, and I will be able to qualify for a large federal subsidy for ACA insurance as long as I keep my MAGI at 138% of FPL income. The Mega Backdoor Roth IRA will enable me to control my early retirement MAGI as I please.

I wanted to ask the boglehead forum users what they thought about my early retirement health insurance strategy. What do you think about keeping MAGI in early retirement at the FPL income level that maximizes the federal ACA subsidy?
It depends on how many years you will contribute with Mega Backdoor Roth versus how much you will need to withdraw from your Roth IRA in order to keep you MAGI low. Suppose you are 5 years to early retirement, you can only contribute maximum $37k/year with Mega Backdoor Roth for 5 years. Once you are in early retirement, if you need to withdraw $40k from your Roth IRA in order to keep your MAGI at 138% FPL, the money doesn't last very long. You may be better off if you withdraw less, making your income say 238% FPL or 338% FPL, and receive a lower subsidy but for more years.
Harry Sit, taking a break from the forums.

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